Thursday, December 06, 2007

How do people handle devaluation fears?

A commenter asks:
How do people cope with possible devaluation fears, do they hold saving in euro's, I can't see why they wouldn't.
First of all, a lot of people don't have much savings. There' s much more debt than savings. Latvia has 140% of its annual GDP in its external debt and most of this debt has been generated by people and companies, rather than the government (whose debt is just 10% of GDP).

Out of those who have savings, some hold them in euros. (I've been advised to do that by several people.) Others just shrug off the devaluation fears. We've had devaluation rumours circulating locally in our country since February or March and nothing has happened yet... I now start seeing more people who are just disregarding devaluation rumours as background noise.
Is it allowed or common in Latvia to pay for every day things with other than a local currency?
No. But it's easy to change currencies or to have a foreign-currency account at a local bank and change the money to lats whenever necessary.


sam said...

I'm glad to see this issue addressed openly. There is anxiety that devaluation might be in the works. Still, the head of the LNB in on for another six years and he's basically said it wouldn't happen on his watch. Would only a sucker take him at his word? I know you read the excellent posts by Edward Hugh. It's pretty hard to argue with his reasoning. What do you think?

Latvian abroad said...

If I was Rimsevics and I planned to devaluate... I'd probably lie my way through the 2nd term confirmation hearings and then devaluate after being confirmed for 6 years. I think this possibility is unlikely, though.

I expect he won't devaluate - unless the overall economic situation deteriorates substantially. Which will not happen overnight.

So, most likely, no devaluation until the second half of 2008, at least. After that... the situation is precarious and I think nobody knows how exactly it will develop.

sam said...

Thanks for your take on it.